Educational training services under principal-to-principal agreement constitute taxable supply, not exempt under Schedule III entry 1

AAR Rajasthan ruled that educational and training services provided under a principal-to-principal agreement do not fall under entry 1 of Schedule III of GST Act. The authority determined no employee-employer relationship existed between the service provider and recipient based on the agreement terms. Consequently, the transaction constitutes a taxable supply of services under Section 7 of CGST Act 2017, with tax liability under Section 9 and valuation under Section 15 of the Act.

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Issues Involved:
1. Determination of the nature of services provided by the applicant.
2. Applicability of GST on the services provided.
3. Classification of the services under the GST Act.

Issue-wise Detailed Analysis:

1. Determination of the Nature of Services Provided by the Applicant:

The applicant, an individual with a temporary GST user ID, previously provided Educational and Training Services to M/s Mentors Eduserv and classified these services under HSN 999294, taxable at 18% under GST law. The applicant's GST registration was canceled, and they have been advised by Income Tax authorities to treat the receipt of such services as employment. The applicant seeks clarification on whether the new services offered to a prospective recipient should be treated as employment or as a supply of services under GST.

The applicant's agreement with M/s Mentors Eduserv specified a principal-to-principal relationship, not an employment relationship. The new offer also contains similar terms and conditions.

2. Applicability of GST on the Services Provided:

The applicant wants to determine if the services under consideration fall under entry 1 of Schedule III of the RGST/CGST Act, which excludes services by an employee to the employer from being treated as a supply of goods or services. The relevant legal provisions include Section 7 (Scope of Supply) and Section 9 (Levy and Collection) of the CGST Act, 2017, which outline the conditions under which GST is applicable.

According to Section 7(2)(a) of the CGST Act, activities specified in Schedule III, such as services by an employee to the employer in the course of employment, are not considered as supply and thus not subject to GST. The agreement between the applicant and M/s Mentors Eduserv, as well as the new offer, clearly state a principal-to-principal relationship, indicating no employment relationship.

3. Classification of the Services under the GST Act:

The agreement dated 10.02.2020 between the applicant and M/s Mentors Eduserv explicitly states that the relationship is on a principal-to-principal basis, and there is no employment relationship. Therefore, the services provided by the applicant do not fall under the exclusion of Schedule III of the GST Act.

The ruling concludes that the services provided by the applicant are not covered under entry 1 of Schedule III of the RGST/CGST Act, 2017. Consequently, these services constitute a supply of service under Section 7 of the CGST Act, 2017, and are subject to GST under Section 9, with valuation as per Section 15 of the CGST Act, 2017.

Ruling:

Question: Whether the services under consideration will be covered under entry 1 of Schedule III of RGST/CGST Act or notRs.

Answer: NO, the services under consideration will not be covered under entry 1 of Schedule III of RGST/CGST Act, 2017.

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